Charles Golvin's Blog

This morning AT&T announced new data pricing for its mobile customers. Today's $30 per month unlimited use plan will be replaced by two plans:

$15 per month for up to 200 megabytes of data, with additional blocks of 200 MB at $15 each.

$25 per month for up to 2 gigabytes of data, with additional blocks of 1 GB at $10 each.

AT&T's CEO of Consumer, Ralph de la Vega, has publicly suggested on multipleoccasions that network operators need to address the small percentage of subscribers that abuse unlimited usage plans and degrade the experience of others on the network. These suggestions have been met with howls by many, and I expect that we'll see similar reactions to this latest change. But will those reactions be justified? The answer depends on whether you believe AT&T's data on its current data users.

Mark Collins, AT&T's Senior VP of Data and Voice Products, told us that 65% of today's smartphone data users consume less than 200 MB of data per month, and 98% of them use less than 2 GB of data per month. These data plans then represent an opportunity for virtually all of AT&T's data customers to reduce their monthly data charges. For consumer product strategists, this change shows a remarkably (and, for some, surprisingly) customer-centric viewpoint. Why?

AT&T provides tools for monitoring usage. AT&T realizes that US consumers despise limits and any sense that the clock is running when they initiate an activity on their phone. To mitigate this concern the carrier is providing historical usage views going back six months to let customers choose a new plan by examining their actual consumption (if they want -- there's no requirement to change), as well as alerts as consumption reaches various levels during the month. (AT&T's not the first to do this, but that doesn't make it any less customer-friendly.)

The new pricing is family-friendly. Today's unlimited plans are 'one size fits all' — but these plans don't fit family plan holders that want to allow their kids, spouse, or former college roommate who glommed on to their plan to access the Net, Facebook, or other data-hungry applications. The lower tier makes data a more palatable add-on, plus the consumption alerts go to the plan holder so they are able to decide whether to allow additional usage or put the brakes on until next month.

Customers have more flexibility. It's not clear whether AT&T will promote this, but the company will allow customers to move freely between these plans during each month's billing period. That means that a 200 MB customer who is approaching his cap well before the month ends can simply go online and change to the 2 GB option for that month, saving himself $5 and getting a lot more data; similarly, a 2 GB customer who notices that her use is below 200 MB as the end of the month nears can decide to live with the 200 MB limit that month and save herself ten bucks. Granted this places the onus on the customer, but this level of control and flexibility is unheard of in the US wireless market.

All very nice, but it begs the question: Why is AT&T leaving money on the table? Can it be just to contend with the 2% of customers who are abusing the current plan. No. There are two reasons for this change:

Data represents future average revenue per user (ARPU) growth. With voice ARPU declining, operators need more of their customers to opt for data plans in order to hold the revenue line. At $30 per month, the ceiling on adoption is much lower than at $15, and the tiered pricing provides some upside among the next wave of data adopters.

Preparation for the future. As operators prepare to launch next generation networks that will deliver much faster data rates and enable users to consume significantly more data in a month than today's networks can deliver, they need a pricing strategy that will allow them to charge a premium and extract greater value from these networks. Flat-rate pricing will prevent them from realizing that value and limits their future data revenue. This is the real underlying rationale for these changes.

If you're an AT&T subscriber with an unlimited data plan, will you stick with your plan or take advantage of the savings opportunity?

Comments

Unlimited is always better. You will end up paying more in the long run when the Network gets better, if you switch to a smaller payment, but allow for paying premiums if you go over a certain amount. NEVER accept plans with premiums! Unlimited allows me to budget, and makes it OK to pay 30 per month.

I think this is the kind of move that everyone was waiting for the major wireless players to make. Consumer backlash will unfortunately probably be, a) initially severe and, b) used by Sprint to further advertise their new 4G product.

The telcos had long abused the customer with high per min/txt/KB overage charges, using them as a stick to encourage them to lock into a plan and ensure either a contract renewal and/or a steady monthly revenue source. There's been a shift, evidenced by the big four's willingness to add/remove features and change rate plans (up or down) without necessarily impacting contract terms. But I'm guessing that the sting of the overage charge is still being felt by consumers, so moving away from an "unlimited" use commitment will be met with skepticism and ire over the return of limits (as Marc points out).

However, the new tools provided by the wireless carriers to monitor usage as well as the historical usage patterns may help to accelerate acceptance and adoption. I myself subscribe to AT&T's $30 unlimited plan and was somewhat surprised to see that, over the past six months, I've only been able to use 165MB at the most. If I can save $15 per month per line of service on my account (my wife has an iPhone, but uses data mostly when she's at home and on our wireless network), that's a huge savings to me.

As a non-data user at the moment, and one who keeps eying those iPhones, this is an incentive to me to jump in. I don't see myself using a lot of data, so the current unlimited plan costs are off-putting.

The simplicity of unlimited was a big draw. No choices to make, no analysis to perform, no agonizing over whether you selected the best (cheapest) plan for your needs, no worrying about having to remember to repeat the analysis later as your usage changes, and adjust your plan, etc.

Indeed, before AT&T launched the iPhone and its unlimited plan the carrier with by far the highest data adoption was Sprint -- the only one to offer unlimited. Consumers were clearly uncomfortable with metered data usage. Without question unlimited is a better proposition for consumers.

But it's not a sustainable business model for the carriers.

AT&T hopes that the usage guidelines and automatic alerting will mitigate some of the "analyze, remember, repeat" pain you cite -- though I doubt many customers will lost interest once they think their plan is "right-sized".

It's interesting to compare the trajectory of cell phone services. While talk service has always been offered in a tiered structure defined by limits - with unlimited talk only a recent development in the overall product life cycle - nearly every other service has migrated from service limitations with complex pricing structures to unlimited service with simpler pricing. Voice mail, local versus long distance service, caller ID - all were introduced as upgrades often with their own tiered pricing, adding yet another level of complexity for the consumer. Improvements in technology, competition and increased adoption changed that.

Data seems to be moving in a one step forward one step back direction. Introduced as unlimited (but the technology isn't yet able to support it), then scaled back to a tiered system with limits. I suppose in a few years when the technology has improved and playing field expanded, we'll see unlimited usage plans again.

As a recent iPhone adopter, I cringe at the thought of having to track usage. (I couldn't do it with minutes. Why should I think I'll be able to with bits?) I will stick with the unlimited plan.

They should offer an unlimited plan for the 2 per cent that use more. I stream music at work and decided to switch to ATT from Sprint. I am regretting the choice now. having plans with a low mid and unlimited tier would have been better and I would have paid a fair amount for it. Now at 10 dollars a gig, I will have to check everything that I would normally do with Sprint.